Short-Term Generation Asset Valuation: A Real Options Approach

This paper discusses using real options to value power plants with unit commitment constraints over a short-term period. We formulate the problem as a multistage stochastic problem and propose a solution procedure that integrates forward-moving Monte Carlo simulation with backward-moving dynamic pro...

Ausführliche Beschreibung

Gespeichert in:
Bibliographische Detailangaben
Veröffentlicht in:Operations research 2002-03, Vol.50 (2), p.297-310
Hauptverfasser: Tseng, Chung-Li, Barz, Graydon
Format: Artikel
Sprache:eng
Schlagworte:
Online-Zugang:Volltext
Tags: Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
container_end_page 310
container_issue 2
container_start_page 297
container_title Operations research
container_volume 50
creator Tseng, Chung-Li
Barz, Graydon
description This paper discusses using real options to value power plants with unit commitment constraints over a short-term period. We formulate the problem as a multistage stochastic problem and propose a solution procedure that integrates forward-moving Monte Carlo simulation with backward-moving dynamic programming. We assume that the power plant operator maximizes expected profit by deciding in each hour whether or not to run the unit, that a certain lead time for commitment and decommitment decisions is necessary to start up and shut down a unit, and that these commitment decisions, once made, are subject to physical constraints such as minimum uptime and downtime. We also account for the costs associated with starting up and shutting down a unit. Last, we assume that there are hourly markets for both electricity and the fuel used by the generator and that their prices follow Ito processes. Using numerical simulation, we show that failure to consider physical constraints may significantly overvalue a power plant.
doi_str_mv 10.1287/opre.50.2.297.429
format Article
fullrecord <record><control><sourceid>gale_infor</sourceid><recordid>TN_cdi_gale_infotracacademiconefile_A89159003</recordid><sourceformat>XML</sourceformat><sourcesystem>PC</sourcesystem><galeid>A89159003</galeid><jstor_id>3088497</jstor_id><sourcerecordid>A89159003</sourcerecordid><originalsourceid>FETCH-LOGICAL-c504t-eee131b995af91b011113deaf2cfbdb2dbdbdc34c6a938b91ba304cb8d284c843</originalsourceid><addsrcrecordid>eNqNkU9LwzAYxoMoOKcfQPBQPHiyNX-7xINQhk5hMNAp3kKapltH19SkQ_z2pqt48mACCW_e3_O-SR4AzhFMEOaTG9s6kzCY4ASLSUKxOAAjxHAaM5qSQzCCkMCYpPT9GJx4v4EQCpayEbh7WVvXxUvjttHMNMaprrJNlHlvuuhN1bt9fBtl0bNRdbRo-9BHWds6q_T6FByVqvbm7Gcfg9eH--X0MZ4vZk_TbB5rBmkXG2MQQbkQTJUC5RCFQQqjSqzLvMhxEZZCE6pTJQjPA6IIpDrnBeZUc0rG4HKoG9p-7Izv5MbuXBNaSowE4oJPRICuB2ilaiOrprSdU3q1f1VtG1NW4TjjAjERviPg8R94mIXZVvovHg28dtZ7Z0rZumqr3JdEUPYmyN4EyaDEMpgggwlBczFoNr6z7ldAIOdUTEIaDum-u9v6f1W8GiTrarX-rNxw817bs_4XJt9m-aGG</addsrcrecordid><sourcetype>Aggregation Database</sourcetype><iscdi>true</iscdi><recordtype>article</recordtype><pqid>219189879</pqid></control><display><type>article</type><title>Short-Term Generation Asset Valuation: A Real Options Approach</title><source>Informs</source><source>EBSCOhost Business Source Complete</source><source>Jstor Complete Legacy</source><creator>Tseng, Chung-Li ; Barz, Graydon</creator><creatorcontrib>Tseng, Chung-Li ; Barz, Graydon</creatorcontrib><description>This paper discusses using real options to value power plants with unit commitment constraints over a short-term period. We formulate the problem as a multistage stochastic problem and propose a solution procedure that integrates forward-moving Monte Carlo simulation with backward-moving dynamic programming. We assume that the power plant operator maximizes expected profit by deciding in each hour whether or not to run the unit, that a certain lead time for commitment and decommitment decisions is necessary to start up and shut down a unit, and that these commitment decisions, once made, are subject to physical constraints such as minimum uptime and downtime. We also account for the costs associated with starting up and shutting down a unit. Last, we assume that there are hourly markets for both electricity and the fuel used by the generator and that their prices follow Ito processes. Using numerical simulation, we show that failure to consider physical constraints may significantly overvalue a power plant.</description><identifier>ISSN: 0030-364X</identifier><identifier>EISSN: 1526-5463</identifier><identifier>DOI: 10.1287/opre.50.2.297.429</identifier><identifier>CODEN: OPREAI</identifier><language>eng</language><publisher>Linthicum: INFORMS</publisher><subject>Analysis ; Commodities industry ; Commodity exchanges ; Cost recovery ; Decision analysis: applications ; Deregulation ; Dynamic programming ; Electric power ; Electric power plants ; Electric utilities ; Electricity ; Electricity distribution ; Engineering ; Finance: investment ; Fossil fuel power plants ; Fuels ; Management science ; Market prices ; Monte Carlo methods ; Monte Carlo simulation ; Natural resources: energy ; Operations research ; Options (Finance) ; Options contracts ; Overestimates ; Power plants ; Profits ; Shutdowns ; Startup costs ; Stochastic models ; Studies ; Theory ; United States ; Valuation</subject><ispartof>Operations research, 2002-03, Vol.50 (2), p.297-310</ispartof><rights>Copyright 2002 Institute for Operations Research and the Management Sciences</rights><rights>COPYRIGHT 2002 Institute for Operations Research and the Management Sciences</rights><rights>Copyright Institute for Operations Research and the Management Sciences Mar/Apr 2002</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c504t-eee131b995af91b011113deaf2cfbdb2dbdbdc34c6a938b91ba304cb8d284c843</citedby><cites>FETCH-LOGICAL-c504t-eee131b995af91b011113deaf2cfbdb2dbdbdc34c6a938b91ba304cb8d284c843</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://www.jstor.org/stable/pdf/3088497$$EPDF$$P50$$Gjstor$$H</linktopdf><linktohtml>$$Uhttps://pubsonline.informs.org/doi/full/10.1287/opre.50.2.297.429$$EHTML$$P50$$Ginforms$$H</linktohtml><link.rule.ids>314,776,780,799,3678,27903,27904,57995,58228,62592</link.rule.ids></links><search><creatorcontrib>Tseng, Chung-Li</creatorcontrib><creatorcontrib>Barz, Graydon</creatorcontrib><title>Short-Term Generation Asset Valuation: A Real Options Approach</title><title>Operations research</title><description>This paper discusses using real options to value power plants with unit commitment constraints over a short-term period. We formulate the problem as a multistage stochastic problem and propose a solution procedure that integrates forward-moving Monte Carlo simulation with backward-moving dynamic programming. We assume that the power plant operator maximizes expected profit by deciding in each hour whether or not to run the unit, that a certain lead time for commitment and decommitment decisions is necessary to start up and shut down a unit, and that these commitment decisions, once made, are subject to physical constraints such as minimum uptime and downtime. We also account for the costs associated with starting up and shutting down a unit. Last, we assume that there are hourly markets for both electricity and the fuel used by the generator and that their prices follow Ito processes. Using numerical simulation, we show that failure to consider physical constraints may significantly overvalue a power plant.</description><subject>Analysis</subject><subject>Commodities industry</subject><subject>Commodity exchanges</subject><subject>Cost recovery</subject><subject>Decision analysis: applications</subject><subject>Deregulation</subject><subject>Dynamic programming</subject><subject>Electric power</subject><subject>Electric power plants</subject><subject>Electric utilities</subject><subject>Electricity</subject><subject>Electricity distribution</subject><subject>Engineering</subject><subject>Finance: investment</subject><subject>Fossil fuel power plants</subject><subject>Fuels</subject><subject>Management science</subject><subject>Market prices</subject><subject>Monte Carlo methods</subject><subject>Monte Carlo simulation</subject><subject>Natural resources: energy</subject><subject>Operations research</subject><subject>Options (Finance)</subject><subject>Options contracts</subject><subject>Overestimates</subject><subject>Power plants</subject><subject>Profits</subject><subject>Shutdowns</subject><subject>Startup costs</subject><subject>Stochastic models</subject><subject>Studies</subject><subject>Theory</subject><subject>United States</subject><subject>Valuation</subject><issn>0030-364X</issn><issn>1526-5463</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2002</creationdate><recordtype>article</recordtype><sourceid>8G5</sourceid><sourceid>ABUWG</sourceid><sourceid>AFKRA</sourceid><sourceid>AZQEC</sourceid><sourceid>BENPR</sourceid><sourceid>CCPQU</sourceid><sourceid>DWQXO</sourceid><sourceid>GNUQQ</sourceid><sourceid>GUQSH</sourceid><sourceid>M2O</sourceid><recordid>eNqNkU9LwzAYxoMoOKcfQPBQPHiyNX-7xINQhk5hMNAp3kKapltH19SkQ_z2pqt48mACCW_e3_O-SR4AzhFMEOaTG9s6kzCY4ASLSUKxOAAjxHAaM5qSQzCCkMCYpPT9GJx4v4EQCpayEbh7WVvXxUvjttHMNMaprrJNlHlvuuhN1bt9fBtl0bNRdbRo-9BHWds6q_T6FByVqvbm7Gcfg9eH--X0MZ4vZk_TbB5rBmkXG2MQQbkQTJUC5RCFQQqjSqzLvMhxEZZCE6pTJQjPA6IIpDrnBeZUc0rG4HKoG9p-7Izv5MbuXBNaSowE4oJPRICuB2ilaiOrprSdU3q1f1VtG1NW4TjjAjERviPg8R94mIXZVvovHg28dtZ7Z0rZumqr3JdEUPYmyN4EyaDEMpgggwlBczFoNr6z7ldAIOdUTEIaDum-u9v6f1W8GiTrarX-rNxw817bs_4XJt9m-aGG</recordid><startdate>20020301</startdate><enddate>20020301</enddate><creator>Tseng, Chung-Li</creator><creator>Barz, Graydon</creator><general>INFORMS</general><general>Institute for Operations Research and the Management Sciences</general><scope>AAYXX</scope><scope>CITATION</scope><scope>0U~</scope><scope>1-H</scope><scope>3V.</scope><scope>7WY</scope><scope>7WZ</scope><scope>7X7</scope><scope>7XB</scope><scope>87Z</scope><scope>88E</scope><scope>88F</scope><scope>8AL</scope><scope>8AO</scope><scope>8FE</scope><scope>8FG</scope><scope>8FI</scope><scope>8FJ</scope><scope>8FK</scope><scope>8FL</scope><scope>8G5</scope><scope>ABJCF</scope><scope>ABUWG</scope><scope>AFKRA</scope><scope>ARAPS</scope><scope>AZQEC</scope><scope>BENPR</scope><scope>BEZIV</scope><scope>BGLVJ</scope><scope>CCPQU</scope><scope>DWQXO</scope><scope>FRNLG</scope><scope>FYUFA</scope><scope>F~G</scope><scope>GHDGH</scope><scope>GNUQQ</scope><scope>GUQSH</scope><scope>HCIFZ</scope><scope>JQ2</scope><scope>K60</scope><scope>K6~</scope><scope>K7-</scope><scope>K9.</scope><scope>L.-</scope><scope>L.0</scope><scope>L6V</scope><scope>M0C</scope><scope>M0N</scope><scope>M0S</scope><scope>M1P</scope><scope>M1Q</scope><scope>M2O</scope><scope>M7S</scope><scope>MBDVC</scope><scope>P5Z</scope><scope>P62</scope><scope>PQBIZ</scope><scope>PQBZA</scope><scope>PQEST</scope><scope>PQQKQ</scope><scope>PQUKI</scope><scope>PTHSS</scope><scope>Q9U</scope></search><sort><creationdate>20020301</creationdate><title>Short-Term Generation Asset Valuation: A Real Options Approach</title><author>Tseng, Chung-Li ; Barz, Graydon</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c504t-eee131b995af91b011113deaf2cfbdb2dbdbdc34c6a938b91ba304cb8d284c843</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2002</creationdate><topic>Analysis</topic><topic>Commodities industry</topic><topic>Commodity exchanges</topic><topic>Cost recovery</topic><topic>Decision analysis: applications</topic><topic>Deregulation</topic><topic>Dynamic programming</topic><topic>Electric power</topic><topic>Electric power plants</topic><topic>Electric utilities</topic><topic>Electricity</topic><topic>Electricity distribution</topic><topic>Engineering</topic><topic>Finance: investment</topic><topic>Fossil fuel power plants</topic><topic>Fuels</topic><topic>Management science</topic><topic>Market prices</topic><topic>Monte Carlo methods</topic><topic>Monte Carlo simulation</topic><topic>Natural resources: energy</topic><topic>Operations research</topic><topic>Options (Finance)</topic><topic>Options contracts</topic><topic>Overestimates</topic><topic>Power plants</topic><topic>Profits</topic><topic>Shutdowns</topic><topic>Startup costs</topic><topic>Stochastic models</topic><topic>Studies</topic><topic>Theory</topic><topic>United States</topic><topic>Valuation</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Tseng, Chung-Li</creatorcontrib><creatorcontrib>Barz, Graydon</creatorcontrib><collection>CrossRef</collection><collection>Global News &amp; ABI/Inform Professional</collection><collection>Trade PRO</collection><collection>ProQuest Central (Corporate)</collection><collection>ABI/INFORM Collection</collection><collection>ABI/INFORM Global (PDF only)</collection><collection>Health &amp; Medical Collection</collection><collection>ProQuest Central (purchase pre-March 2016)</collection><collection>ABI/INFORM Global (Alumni Edition)</collection><collection>Medical Database (Alumni Edition)</collection><collection>Military Database (Alumni Edition)</collection><collection>Computing Database (Alumni Edition)</collection><collection>ProQuest Pharma Collection</collection><collection>ProQuest SciTech Collection</collection><collection>ProQuest Technology Collection</collection><collection>Hospital Premium Collection</collection><collection>Hospital Premium Collection (Alumni Edition)</collection><collection>ProQuest Central (Alumni) (purchase pre-March 2016)</collection><collection>ABI/INFORM Collection (Alumni Edition)</collection><collection>Research Library (Alumni Edition)</collection><collection>Materials Science &amp; Engineering Collection</collection><collection>ProQuest Central (Alumni Edition)</collection><collection>ProQuest Central UK/Ireland</collection><collection>Advanced Technologies &amp; Aerospace Collection</collection><collection>ProQuest Central Essentials</collection><collection>ProQuest Central</collection><collection>Business Premium Collection</collection><collection>Technology Collection (ProQuest)</collection><collection>ProQuest One Community College</collection><collection>ProQuest Central Korea</collection><collection>Business Premium Collection (Alumni)</collection><collection>Health Research Premium Collection</collection><collection>ABI/INFORM Global (Corporate)</collection><collection>Health Research Premium Collection (Alumni)</collection><collection>ProQuest Central Student</collection><collection>Research Library Prep</collection><collection>SciTech Premium Collection</collection><collection>ProQuest Computer Science Collection</collection><collection>ProQuest Business Collection (Alumni Edition)</collection><collection>ProQuest Business Collection</collection><collection>Computer Science Database</collection><collection>ProQuest Health &amp; Medical Complete (Alumni)</collection><collection>ABI/INFORM Professional Advanced</collection><collection>ABI/INFORM Professional Standard</collection><collection>ProQuest Engineering Collection</collection><collection>ABI/INFORM Global</collection><collection>Computing Database</collection><collection>Health &amp; Medical Collection (Alumni Edition)</collection><collection>Medical Database</collection><collection>Military Database</collection><collection>Research Library</collection><collection>Engineering Database</collection><collection>Research Library (Corporate)</collection><collection>Advanced Technologies &amp; Aerospace Database</collection><collection>ProQuest Advanced Technologies &amp; Aerospace Collection</collection><collection>ProQuest One Business</collection><collection>ProQuest One Business (Alumni)</collection><collection>ProQuest One Academic Eastern Edition (DO NOT USE)</collection><collection>ProQuest One Academic</collection><collection>ProQuest One Academic UKI Edition</collection><collection>Engineering Collection</collection><collection>ProQuest Central Basic</collection><jtitle>Operations research</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Tseng, Chung-Li</au><au>Barz, Graydon</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Short-Term Generation Asset Valuation: A Real Options Approach</atitle><jtitle>Operations research</jtitle><date>2002-03-01</date><risdate>2002</risdate><volume>50</volume><issue>2</issue><spage>297</spage><epage>310</epage><pages>297-310</pages><issn>0030-364X</issn><eissn>1526-5463</eissn><coden>OPREAI</coden><abstract>This paper discusses using real options to value power plants with unit commitment constraints over a short-term period. We formulate the problem as a multistage stochastic problem and propose a solution procedure that integrates forward-moving Monte Carlo simulation with backward-moving dynamic programming. We assume that the power plant operator maximizes expected profit by deciding in each hour whether or not to run the unit, that a certain lead time for commitment and decommitment decisions is necessary to start up and shut down a unit, and that these commitment decisions, once made, are subject to physical constraints such as minimum uptime and downtime. We also account for the costs associated with starting up and shutting down a unit. Last, we assume that there are hourly markets for both electricity and the fuel used by the generator and that their prices follow Ito processes. Using numerical simulation, we show that failure to consider physical constraints may significantly overvalue a power plant.</abstract><cop>Linthicum</cop><pub>INFORMS</pub><doi>10.1287/opre.50.2.297.429</doi><tpages>14</tpages></addata></record>
fulltext fulltext
identifier ISSN: 0030-364X
ispartof Operations research, 2002-03, Vol.50 (2), p.297-310
issn 0030-364X
1526-5463
language eng
recordid cdi_gale_infotracacademiconefile_A89159003
source Informs; EBSCOhost Business Source Complete; Jstor Complete Legacy
subjects Analysis
Commodities industry
Commodity exchanges
Cost recovery
Decision analysis: applications
Deregulation
Dynamic programming
Electric power
Electric power plants
Electric utilities
Electricity
Electricity distribution
Engineering
Finance: investment
Fossil fuel power plants
Fuels
Management science
Market prices
Monte Carlo methods
Monte Carlo simulation
Natural resources: energy
Operations research
Options (Finance)
Options contracts
Overestimates
Power plants
Profits
Shutdowns
Startup costs
Stochastic models
Studies
Theory
United States
Valuation
title Short-Term Generation Asset Valuation: A Real Options Approach
url https://sfx.bib-bvb.de/sfx_tum?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2025-01-24T14%3A41%3A49IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-gale_infor&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=article&rft.atitle=Short-Term%20Generation%20Asset%20Valuation:%20A%20Real%20Options%20Approach&rft.jtitle=Operations%20research&rft.au=Tseng,%20Chung-Li&rft.date=2002-03-01&rft.volume=50&rft.issue=2&rft.spage=297&rft.epage=310&rft.pages=297-310&rft.issn=0030-364X&rft.eissn=1526-5463&rft.coden=OPREAI&rft_id=info:doi/10.1287/opre.50.2.297.429&rft_dat=%3Cgale_infor%3EA89159003%3C/gale_infor%3E%3Curl%3E%3C/url%3E&disable_directlink=true&sfx.directlink=off&sfx.report_link=0&rft_id=info:oai/&rft_pqid=219189879&rft_id=info:pmid/&rft_galeid=A89159003&rft_jstor_id=3088497&rfr_iscdi=true